Personal Finance: Diamonds aren't so rough

THE MARKET crash has sent investors scurrying for commodities which will be proof against the slump in shares but still give a strong rise in value as soon as growth resumes. Gold, platinum and diamonds are often used as refuges in times of uncertainty.

Gold has again proved its value in places like Indonesia, Malaysia and Russia where the currencies have collapsed. But gold earns no interest, and although it was a good investment in the 1970s when inflation was high, in recent years it has failed to provide investors with much protection. Platinum and palladium have performed better than gold, but prices are still well below their best levels.

Oil prices are even more depressed at the prospect of a recession and falling demand. Mining shares reflect this. Rio Tinto shares have fallen 40 per cent from their peak last October, although dividends are good. Lonrho, which is now a pure mining company after hiving off its other interests in May, has also fallen by a third in the last year, but the shares now yield 8 per cent.

The price of cut diamonds is still tightly controlled by the De Beers cartel. The cartel invites buyers for the jewellery trade to make sealed bids for parcels of gemstones. There is no secondary market for small investors.

A number of punters got their fingers burned in the 1970s when there was a brief speculative boom in diamonds as a retail investment and hedge against inflation. Small investors found themselves having to try to sell second-hand stones back to retail jewellers and discovered to their cost that the margins between buying and selling are very wide, and fashions in cut stones change.

But the diamond market as a whole is still relatively stable, partly because the cartel maintains a balance between supply and demand simply by reducing sales when demand is likely to be weak.

Investors who want a piece of the action will do better to buy shares in diamond companies. Shares in De Beers currently reflect the fact that it is having to hold substantial stocks to manage supply and demand and maintain its policy of gradually increasing prices just ahead of inflation. Last week De Beers shares were trading at pounds 8.50, compared with almost pounds 20 a year ago. At that price they are valued at nine times annual earnings.

Although De Beers still controls up to 90 per cent of worldwide diamond sales, there are a few independent producers that in effect ride on the back of De Beers and the cartel, exploiting the price stability.

Firestone Diamonds was formed in 1996 to mine alluvial diamond deposits in South Africa, and it floated on the Alternative Investment Market earlier this year at 114p a share. It was caught up in the downturn in share prices and is now trading at around 86.5p.

There is no immediate prospect of a dividend but the company hopes to declare a profit in the current year which ends in June 1999. The shares look a better bet at 86.5p, given the expected stability in the diamond price relative to most other economic variables. The main threat to an investment in diamond shares is the political outlook in South Africa.

Independent Partners; request a free guide on NISAs from Hargreaves Lansdown

Arts and Entertainment
Joe Cocker performing on the Stravinski hall stage during the Montreux Jazz Festival, in Montreux, Switzerland in 2002
musicHe 'turned my song into an anthem', says former Beatle
News
Clarke Carlisle
sport
Sport
footballStoke City vs Chelsea match report
Arts and Entertainment
theatreThe US stars who've taken to UK panto, from Hasselhoff to Hall
PROMOTED VIDEO
Life and Style
Approaching sale shopping in a smart way means that you’ll get the most out of your money
life + styleSales shopping tips and tricks from the experts
News
newsIt was due to be auctioned off for charity
News
Coca-Cola has become one of the largest companies in the world to push staff towards switching off their voicemails, in a move intended to streamline operations and boost productivity
peopleCoca-Cola staff urged to switch it off to boost productivity
Environment
Sir David Attenborough
environment... as well as a plant and a spider
Voices
'That's the legal bit done. Now on to the ceremony!'
voicesThe fight for marriage equality isn't over yet, says Siobhan Fenton
Finacial products from our partners
Property search
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

ES Rentals

    iJobs Job Widget
    iJobs Money & Business

    The Jenrick Group: Night Shift Operations Manager

    £43500 per annum + pension + holidays: The Jenrick Group: Night Shift Operatio...

    SThree: Trainee Recruitment Consultant - LONDON

    £20000 - £25000 per annum + OTE £40,000 + Car + Pension: SThree: SThree are a ...

    SThree: Trainee Recruitment Consultant

    £20000 - £25000 per annum + OTE £35K: SThree: We consistently strive to be the...

    SThree: Graduate Recruitment Consultant

    £20000 - £25000 per annum + OTE £35000: SThree: SThree are a global FTSE 250 b...

    Day In a Page

    Isis in Iraq: Yazidi girls killing themselves to escape rape and imprisonment by militants

    'Jilan killed herself in the bathroom. She cut her wrists and hanged herself'

    Yazidi girls killing themselves to escape rape and imprisonment
    Ed Balls interview: 'If I think about the deficit when I'm playing the piano, it all goes wrong'

    Ed Balls interview

    'If I think about the deficit when I'm playing the piano, it all goes wrong'
    He's behind you, dude!

    US stars in UK panto

    From David Hasselhoff to Jerry Hall
    Grace Dent's Christmas Quiz: What are you – a festive curmudgeon or top of the tree?

    Grace Dent's Christmas Quiz

    What are you – a festive curmudgeon or top of the tree?
    Nasa planning to build cloud cities in airships above Venus

    Nasa planning to build cloud cities in airships above Venus

    Planet’s surface is inhospitable to humans but 30 miles above it is almost perfect
    Surrounded by high-rise flats is a little house filled with Lebanon’s history - clocks, rifles, frogmen’s uniforms and colonial helmets

    Clocks, rifles, swords, frogmen’s uniforms

    Surrounded by high-rise flats is a little house filled with Lebanon’s history
    Return to Gaza: Four months on, the wounds left by Israel's bombardment have not yet healed

    Four months after the bombardment, Gaza’s wounds are yet to heal

    Kim Sengupta is reunited with a man whose plight mirrors the suffering of the Palestinian people
    Gastric surgery: Is it really the answer to the UK's obesity epidemic?

    Is gastric surgery really the answer to the UK's obesity epidemic?

    Critics argue that it’s crazy to operate on healthy people just to stop them eating
    Homeless Veterans appeal: Christmas charity auction Part 2 - now LIVE

    Homeless Veterans appeal: Christmas charity auction

    Bid on original art, or trips of a lifetime to Africa or the 'Corrie' set, and help Homeless Veterans
    Pantomime rings the changes to welcome autistic theatre-goers

    Autism-friendly theatre

    Pantomime leads the pack in quest to welcome all
    The week Hollywood got scared and had to grow up a bit

    The week Hollywood got scared and had to grow up a bit

    Sony suffered a chorus of disapproval after it withdrew 'The Interview', but it's not too late for it to take a stand, says Joan Smith
    From Widow Twankey to Mother Goose, how do the men who play panto dames get themselves ready for the performance of a lifetime?

    Panto dames: before and after

    From Widow Twankey to Mother Goose, how do the men who play panto dames get themselves ready for the performance of a lifetime?
    Thirties murder mystery novel is surprise runaway Christmas hit

    Thirties murder mystery novel is surprise runaway Christmas hit

    Booksellers say readers are turning away from dark modern thrillers and back to the golden age of crime writing
    Anne-Marie Huby: 'Charities deserve the best,' says founder of JustGiving

    Anne-Marie Huby: 'Charities deserve the best'

    Ten million of us have used the JustGiving website to donate to good causes. Its co-founder says that being dynamic is as important as being kind
    The botanist who hunts for giant trees at Kew Gardens

    The man who hunts giants

    A Kew Gardens botanist has found 25 new large tree species - and he's sure there are more out there